House GOP Unveils New Homeowner Subsidy Policy
The House GOP has unveiled a a new housing plan. Among the provisions are these:
1. A $5,000 tax credit for people who refinance their homes. This is designed to help people who are in trouble making their monthly mortgage payments.
2. A $15,000 credit for homebuyers who put more than 5 percent down. This gives homebuyers an incentive to put some skin in the game when they purchase a home.
3. Extends the real estate capital gains tax exemption not just to primary residences, but to investment properties as well. “If you invest in your neighborhood,” said Rep. Kevin Brady, “then we’ll invest in you.”
Writing in the Corner, Jerry Taylor slams this proposal.
[H]ow about this — an end to federal subsidies for home ownership. Market actors have overinvested in housing. The macroeconomy will not recover until that money is transferred out of housing and into other, more productive economic sectors. Plans to retard that necessary shift in investment will slow economic recovery and produce a less efficient economy as a consequence.
I know that there is plenty of political capital to be gained by providing handouts to middle-class homeowners and little political capital in removing the same. But a political party that ostensibly stands for free markets and limited government should not be in the business of underwriting or subsidizing private investments in anything unless we can find some plausible market failure in need of correction (and perhaps not even then).
Matthew Yglesias concurs with Taylor:
Preferential subsidies for investment in housing lead people to, on average, consume more housing and less stuff-that-isn’t-housing than they otherwise would. In other words, bigger houses instead of fancier clothes. This, in turn, has a substantial negative impact on the economy. Larger houses cost more to heat and cool, and larger houses lead to longer commutes. We shouldn’t stop people from buying big houses if that’s what they want to do, but it’s quite harmful to be specifically encouraging them to invest their resources in this way quite independently from the financial crisis.
You’ll get no debate from me on this. I’d also add, for myself, that homeownership, especially for younger people at the start of their careers, can actively be a bad thing. Not only are we encouraging people to spend too much on housing when they could be spending it on other things, but that rootedness of homeownership limits people’s flexibility in adjusting to more localized economic downturns. If you’re renting, and times are tough, you can make a deal with your landlord or just move into a place with cheaper rent when your lease is up. If you find a new job in a different city, it’s a lot easier to handle a couple of months of lease payments or to find someone to sublet than it is to try to sell a house at the same time you’re starting out in a new job in a new community. Owning a house can actively be an economic burden for people, especially in times of economic distress like we’re seeing now.
I have no problem with homeownership. If someone wants to buy a house, more power to them. But I fail to see why we need to subsidize that choice.
(cross-posted to Heretical Ideas)